UPDATE: Russia to turn Promsvyazbank into bank for defense order

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MOSCOW, Jan 19 (PRIME) -- A bank intended for the defense order and other large-scale state procurement operations will be established on the basis of troubled Promsvyazbank and will be headed by the Russian Export Center CEO Pyotr Fradkov, Finance Minister Anton Siluanov told reporters on Friday.

On Thursday, the ministry said that the government would create a bank to handle state defense order and large state contracts, including provision of banking support, settlements with contractors or defense companies, and provision of loans to defense companies, in the conditions of Western sanctions.

A spokesperson for the central bank told PRIME that additional funds will be injected into PromsvyazbankТs capital. It will be moved under state ownership in January-March, but will continue standard banking operations along with its new functions.

Maxim Osadchy, director of the research department at Corporate Finance Bank, said that the bank will need 200-300 billion rubles of capital before it can be turned into a defense and state procurement bank and added that the central bank is likely to transfer the bank under state control without any payment.

Senior Director of the banking research group at global rating agency Fitch Alexander Danilov told PRIME that the decision may trigger Western sanctions against Promsvyazbank.

УThe sanctions may be extended to any individual or legal entity involved in significant transactions with companies of RussiaТs defense industry. Provision of support to defense contracts is likely to be recognized such significant transactions,Ф he said.

Director for banking rating at RAEX Ruslan Korshunov said that Promsvyazbank may merge with state industrial giant RostecТs Novikombank or any other large bank before it is turned into a state bank to service the defense industry.

Promsvyazbank, a top-10 bank by assets, has been undergoing bailout procedures led by the central bank since mid-December.